THE
APPRAISAL PROCESS
Contributing Author:
Calvin W. Moye, IFAS
Today is the age of specialization and the real estate profession
is no exception to the rule. Real estate appraising is a complex
field. The sale of your home, business or any "real
property" may be the largest transaction of your lifetime.
Appraisers' opinions can play an important part in almost any real
estate transaction for this reason a NAIFA Independent Appraiser
should be consulted.
WHAT IS AN APPRAISAL?
An appraisal is an opinion of
value or the act or process of estimating value. This opinion or
estimate is derived by using the three common approaches, all derived
from the market. They are:
- 1. Cost Approach to value is what it would cost to replace or
reproduce the improvements as of the date of the appraisal, less
the Physical Deterioration, the Functional Obsolescence and the
Economic Obsolescence. The remainder is added to the Land Value.
- 2. Comparison Approach to value makes use of other "bench
mark" properties of similar size, quality and location that
have recently sold. A comparison is made to the subject property.
- 3. Income Approach to value is of primary importance in
ascertaining the value of income producing properties, has little
weight in residential type properties. This approach provides an
objective estimate of what a prudent investor would pay based upon
the net income the property produces.
Then, after thorough analysis of all general and specific data
gathered from the market, a final estimate or opinion of value is
correlated.
HOW TO CHOOSE AN APPRAISER
Before engaging the
services of an appraiser, it is advisable to thoroughly check the
qualifications of the appraiser. The National Association of
Independent Fee Appraisers conducts a professionally recognized
testing and certifying program, so, you can rest assured when you
chose an appraiser from NAIFA's on-line
Appraiser Directory!
NAIFA was founded in 1961 as a non profit professional
association of real estate appraisers. Today, the Association has
chapters throughout the United States, Canada, & Mexico.....and
continues to grow both in number and in stature.
The Association's objectives are to raise the standards of the
appraisal profession, gain recognition for its' members as qualified
professionals, and to promote fellowship among appraisers. These
objectives, professionally recognized testing, and a certifying
program, affords reasonable assurance to the general public of the
professional expertise, integrity, and responsibility of the NAIFA
members.
NAIFA's Professional Designations include four member
categories:
MEMBER [IFA] Must join the Association as a
Candidate, pass a written examination and submit a narrative appraisal
report meeting the Association's requirements. The report must be
approved by the National Education Committee and the Candidate must
also meet the educational and appraisal experience requirements
outlined by the Association.
MEMBER/AGRICULTURE [IFAA] Must join the
Association as a Candidate or be a Member [IFA] and meet minimum
experience requirements for Senior Member [IFAS], successfully pass
the IFAA comprehensive examination, submit a narrative demonstration
report on an agricultural property conforming with prescribed
guidelines and also meet appraisal educational and experience
requirements as outlined by the Association.
SENIOR MEMBER [IFAS] Must join as a
Candidate and first meet the requirements for the Member [IFA] or be a
Member [IFA], successfully pass the Senior Member Examination, submit
a narrative demonstration report on an income producing property
conforming with prescribed guidelines and meet educational and
experience requirements as outlined by the Association.
APPRAISER/COUNSELOR [IFAC] An
Appraiser/Counselor must have been a Senior Member [IFAS] for three
[3] years and have five [5] years experience in counseling prior to
submitting a thesis of an actual counseling experience. The thesis
must be approved by the National Education Committee with final
approval of the Appraiser/Counselor by the National Board of
Directors. The Appraiser/Counselor with IFAC designation is the
Association's highest recognition of proficiency.
HOW YOU MAY HELP
Once you have selected an appraiser,
be prepared to answer the following questions or have as much
information as possible:
- 1. Purpose of the appraisal.
- 2. The required completion date of the appraisal.
- 3. Provide a copy of deed, survey, purchase agreement or other
pertinent papers pertaining to the property.
- 4. Is there a mortgage? If so, with whom, when placed, for how
much, type of mortgage [FHA, VA etc.], interest rate, and any
other types of financing?
- 5. Copy of current real estate tax bill, statement of special
assessments, balance owing and on what [sewer, water, etc.].
- 6. Is property listed for sale and if so, for how much and with
whom?
- 7. What personal property is included?
- 8. If this is an income producing property, you must have a
breakdown of income and expenses for the last year or two and a
copy of leases.
CODE OF ETHICS
National Association of
Independent Fee Appraisers [NAIFA] is organized for a full
and free interchange of ideas between appraisers whose responsibility
to their clients is on a direct freely negotiated basis. It is
organized so that the public when seeking an appraiser may obtain the
service of a qualified Independent Fee Appraiser.
8.1 PROFESSONAL CONDUCT: A member shall conduct himself/herself at
all times in a manner beneficial to the Association and to the
community.
8.2 FEES: No fee may be contingent upon the valuation of an
appraisal. All fees for trial testimony must be determined prior to
the trial. No fees may be split without the consent of all interested
parties.
8.3 APPRAISAL REPORTS: Each appraisal must contain the following
items in addition to all pertinent information known to the appraiser
at the time of the appraisal:
- A. A statement as to purpose and/or objective of the appraisal,
with value defined.
- B. A legal description and/or adequate identification of the
property appraised.
- C. The date of the value estimate, the date at which the value
estimate applies.
- D. An adequate description of the physical characteristics of
the property appraised.
- E. A statement as to the known and/or observed encumbrances, if
applicable.
- F. A statement and analysis of the highest and best use of the
property appraised, if appropriate.
- G. A statement as to the property rights appraised.
- H. A direct sales comparison approach and analysis, if
applicable.
- I. A cost approach and analysis, if applicable.
- J. An income approach and analysis, if applicable.
- K. A statement as to the conclusions reached in the appraisal
report.
- L. Documentation requirements [the appraiser must have the
minimum data requirements in his/her file to properly support the
final estimate of value].
- M. A statement as to the assumption and limiting conditions
affecting the appraisal.
- N. The signature of the responsible appraiser together with
his/her particular designation [ IFA, IFAA, IFAS, IFAC].
- O. The maintenance of confidentiality regarding the appraisal
assignment and results thereof.
- P. Designated members [ IFA, IFAA, IFAS, IFAC] must disclose
their continuing education status clearly in every appraisal
report.
8.4 VALUE REPORTS. No value conclusion may be formulated upon:
- A. Improbable and unsupportable premises.
- B. Vague assumptions unsupported by fact.
- C. Improbable highest and best use.
8.5 CERTIFICATION STATEMENT. The certification of each appraisal must
contain the statement: "This appraisal has been prepared in
conformity with the Code of Ethics of the National Association of
Independent Fee Appraisers and the Uniform Standards of Professional
Appraisal Practice [USPAP] as promulgated by the Appraisal
Foundation." On printed forms supplied or required by client, the
appraiser is bound by the above code and certification even though the
statement is not contained therein.
8.6 PROFESSIONAL PRACTICE. It is unethical for an appraiser to:
- A. Conduct himself/herself in any manner which will prejudice
his/her professional status or the reputation of any appraisal
organization with which he/she is connected.
- B. Compete unfairly with other appraisers.
- C. Injure by falsification or by malice, directly or indirectly,
the professional reputation, prospects or business of any other
appraiser.
- D. Fail to report to the Association, the actions of any member
who, in the opinion of the reporting member, has violated this
code of ethics.
- E. Advertise or solicit appraisal business in any manner not
consonant with accepted professional practice.
- F. Reveal in any way the substance of any appraisal with out
permission of the client or due process of law.
- G. Issue a separate appraisal report when another appraiser
assigned to appraise the property has had a part in the formation
of the opinion of value.
- H. Issue an appraisal report on only a part of a whole property
without stating that it is a fractional appraisal; and, as such,
subject to use in a manner consistent with such limitations.
- I. Accept an assignment to appraise a property of a type with
which he/she has had no previous experience unless in making the
appraisal, he/she associates himself/herself with an appraiser who
has had experience with the type of property being appraised; or,
makes full disclosure of the degree of his/her experience,
background and training to his/her client.
- J. Appraise knowingly, a property which is subject to existing
leases, encumbrances or other specific factors without disclosing
the effects thereof upon the value of the property.
- K. Appraise property in which the appraiser has an interest
without that interest being fully disclosed.
- L. Contract for or accept compensation for appraisal or analysis
services in the form of a commission, rebate, division of
brokerage commissions, or any similar form.
- M. Receive or pay any finders or referral fees.
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WHY HAVE AN APPRAISAL?
Appraisals are obtained for several reasons, including to:
An appraisal of real estate is the valuation of the rights of ownership, the appraiser
must define the rights he intends to appraise.
The appraiser does not create value, the appraiser interprets the market to
arrive at a value estimate. As the appraiser compiles data pertinent to a report,
consideration must be given to the site and amenities as well as the physical
condition of the property. An appraiser may spend only a short time inspecting
the property, however, this is only the beginning.
Considerable research for collecting general and specific data must be accomplished
before the appraiser can arrive at a final opinion of value.
Due to the many types of value, such as Fair Market Value, Insurance Value,
Tax Value and Value In Use, the need to precisely define the purpose of the appraisal
is readily indicated.
Today is the age of specialization and the real estate profession is no exception
to the rule. Real estate appraising is a complex field. The sale of your home,
business or any "real property" may be the largest transaction of your
lifetime. Appraisers' opinions can play an important part in almost any real estate
transaction for this reason an Independent Appraiser
should be consulted.
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NATIONAL
ASSOCIATION OF
INDEPENDENT FEE
APPRAISERS
The National Association of Independent Fee Appraisers was founded in 1961
as a non profit professional association of real estate appraisers. Today, our
Association has chapters throughout the United States, Mexico, Canada, and
we continue to grow both in number and stature.
The Association's objectives are to raise the standards of the appraisal profession,
gain recognition for its members as qualified professionals, and to promote fellowship
among appraisers.
Our objectives, along with a professionally recognized testing and certifying
program we conduct, affords reasonable assurance to the general public of the
professional expertise, integrity, and responsibility of the members of the National
Association of Independent Fee Appraisers.
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LICENSE
& CERTIFICATION
In 1991, the United States federal legislation passed a law that real estate
appraisers must be licensed or certified by each state in which they wish to appraise
certain types of "federally related real estate transactions."
Each of the 50 states have their own education, experience, and examination
requirements to receive a real estate appraiser license or certification. Also,
since regulations and laws vary from state to state, it is best to contact the
state regulatory agency for these individual requirements in the specific state
where you want to work.
Visit the Louisiana Real Estate Commission's website www.lrec.state.la.us
for more information about licensing and certification of appraisers in Louisiana.
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REAL
ESTATE - APPRAISERS - CONSULTANTS
